Colorado HB26-1421: ABS and PE-Backed Law Firms Effectively Banned — Effective August 12, Extraterritorial Reach Included

Colorado Governor Jared Polis signed HB26-1421 — the Colorado Legal Practice Integrity and Fee-sharing Prohibition Act — on June 4, 2026. Effective August 12, 2026 (sunset September 1, 2029), the Act broadly prohibits alternative business structures and restricts MSO compensation to flat fees or hourly payments not tied to profits, recoveries, or settlements, with language specifically targeting private equity economics. The extraterritorial reach clause is the most significant element for multi-state law firm business models: the Act applies to ABS structures wherever organized or denominated, and to legal services arising in whole or in part in Colorado — meaning firms organized elsewhere cannot structure around the prohibition. Enforcement is expanded beyond attorney discipline: clients may sue to recover fees paid in violation of the Act, and any law firm generating more than 10% of its revenue in Colorado that suffers competitive injury from a noncompliant rival can also bring suit. For firm general counsel, executive directors, and CFOs with any MSO or ABS arrangements that touch Colorado, the August 12 deadline requires immediate structure review — not just of Colorado-specific matters but of any existing agreements that could be characterized as economically participating in Colorado legal services, regardless of how they are labeled.